UPDATE 1-Needham sees turnaround at RC2 in 2009; shares rise

Nov 4 (Reuters) - Needham & Co upgraded RC2 Corp RCRC.O
to "buy" from "hold," and said the U.S. toy company's results
will show a sharp rebound in 2009, partly helped by better
sales of several products, lower transportation as well as raw
material costs, sending its shares up as much as 16 percent.

On Monday, RC2 posted a lower-than-expected third-quarter
profit, hurt by a decline in product sales amid a sluggish
retail market, and cut its 2008 earnings outlook for the second
time this year. [ID:nBNG293]

But Needham analyst Sean McGowan believes there are several
factors that lead him to expect significantly better results in
2009.

McGowan said the company, which has been hurt by recalls of
lead-tainted products, should see a rebound in sales of its
Thomas & Friends line of toys from last year's recall-stalled
levels.

"Better shelf space at Toys R Us and stable shelf space at
Wal-Mart (WMT.N: Quotazione) and Target (TGT.N: Quotazione) should allow for an
increase in shipments," McGowan wrote in a note to clients.

McGowan also sees sales from the First Years, Super Why!,
and The Fast and the Furious line to improve.

Lower prices of raw materials like zinc and resin should
help margins. Zinc prices are down 50 percent in the last year,
while resin prices should also follow the sharp decline in
crude oil products, McGowan said.

RC2 negotiated a reduction in royalty rates on die-cast
Thomas products, with the reduction taking effect in mid-2008.
McGowan believes a full year of lower royalties should help the
company.

The analyst has a price target of $25 on RC2's stock.

Shares of the Oak Brook, Illinois-based company were up
$1.48 at $13.51 in morning trade Tuesday on Nasdaq. They
touched a high of $13.90 earlier.
(Reporting by Dilipp S Nag in Bangalore; Editing by Pratish
Narayanan)